New Delhi: Hero Honda Motors Ltd will spend Rs 175 crore on an image makeover following a break-up with its long-standing joint venture partner, Japan’s Honda Motor Co. Ltd, that will see the Honda name being dropped from its motorcycles.
“This is in addition to what the company spends on its advertising and marketing campaign every year,” said a Hero Honda director who was present at the 4 May board meeting that took the decision, and who asked not to be identified. This person added that the makeover would help the brand connect better with young people and the middle class while reflecting a global image.
“The message which needs to be conveyed to the people is that post-split, Hero is efficient enough to maintain the quality and durability of the products that made the company such a success,” said the director. “At least Rs 60 crore will be utilized for the creation of new commercials and payment to the brand ambassadors, and rest for positioning of brand in India and abroad. This is in line with the company’s plans to approach global markets.”
Hero Honda intends to ship its motorcycles and scooters to Latin America, Africa, West Asia and South-East Asia. London-based brand specialist Wolff Olins and advertising agency Law and Kenneth Communications (India) Pvt. Ltd are in charge of the rebranding exercise. Wolff Olins will work on the new brand identity and Law & Kenneth will create, communicate, launch and establish the new brand.
Hero Honda has as many as eight brand ambassadors, including Virender Sehwag, Yuvraj Singh, Harbhajan Singh, Zaheer Khan and actor Hrithik Roshan. The company is one of the largest spenders in terms of advertising and promotions, and has been actively associated with big-ticket events such as the cricket World Cup, the Indian Open golf tournament, the Indian Premier League, the hockey World Cup and the Commonwealth Games.
“Hero Honda features in the top 10 brands in the country. Repositioning of such a brand is a big exercise. No doubt the expenditure will be big,” said Anil Nayar, chief executive officer and managing partner at Law & Kenneth. “It is a month-long exercise,” he added, referring to the time it will take for the makeover. “We are still in the process of conceptualizing the whole thing.”
A Hero Honda official confirmed that the company was working on a new brand identity, but declined to put a number to the cost.
These figures are not in the public domain, said Anil Dua, vice-president (marketing and sales). “We have time till June 2014 to use the Honda brand. But certainly we have no plans to continue with it for such a long period. We have been working on the new brand. It is a very, very strategic decision. We will be looking at it as part of our advertising and marketing expenses,” he said.
Dua added that the company spends 2-2.5% of its net sales on advertising and marketing every year, which was at least Rs 350 crore in the last fiscal.
According to an executive at a media buying firm who did not want to be identified, the top four advertisers, by spends, in India are Hindustan Unilever Ltd (HUL), Bharti Airtel Ltd, ITC Ltd and Reckitt Benckiser (India) Ltd. “HUL spends at least Rs 1,400-1,500 crore annually on (its) marketing and advertising campaigns,” said this person.
As part of the rebranding exercise, Wolff Olins and Law & Kenneth will “present their assessment of recent brand revamps such as Bharti Airtel and entry strategies used by new brands like Tata DoCoMo—which were also developed by Wolff Olins”, said the director. Bharti spent around Rs 300 crore on its rebranding exercise, as reported by Mint in November.
In the short-term, the expenditure on brand-building will hurt the company’s profitability, say analysts.
“(Profit) Margins might be under pressure in the near term owing to rising raw material costs and higher brand- building spends for Hero Honda,” wrote Jatin Chawla, sector analyst at India Infoline Ltd, in a recent report. The “benefits of operating leverage should cushion the impact to a great deal”.
The company expects Ebitda (earnings before interest, tax, depreciation and amortization, a measure of operating profit) margins to remain at the last quarter’s levels, as it sees any benefit of higher prices and operating leverage being offset by investments in brand transition, research and development and export initiatives.
“Despite the brand transition, a strong franchise in Splendor and Passion (popular motorcycle models of the company), as well as strong distribution puts it in a good position to tap strong expected demand growth over the next few years,” Jinesh Gandhi, sector analyst at Motilal Oswal Securities Ltd, said in a 4 May research report.
“Investments for transition (brand, technology and developing export markets) would ensure that Ebitda margins stay below their historical average of 15% (over the past 10 years), though margins are expected to improve from FY11 levels over the next two years,” he added.